Managerial ownership and corporate innovation: evidence of patenting activity from Chinese listed manufacturing firms

Tingqian Pu and Abdul Hadi Zulkafli

Cogent Business & Management, 2024, vol. 11, issue 1, 2289202

Abstract: Corporate innovation plays a crucial role in maintaining competitiveness and enhancing firm value. However, despite being the world’s leading manufacturing nation, the role of managerial ownership in fostering innovation within the Chinese manufacturing industry has not received adequate attention. Therefore, this research investigates the influence of managerial ownership on corporate innovation using data on patent activities from Chinese listed manufacturing firms covering the period from 2008 to 2021. Drawing on agency theory, empirical evidence confirms a positive relationship between managerial ownership and corporate innovation. This result remains robust across various tests, including the use of alternative dependent variables, the application of two-stage Data Envelopment Analysis (DEA) to control for managerial ability, correction of selection bias using Heckman two-stage estimation, and the utilization of Generalized Method of Moments (GMM) estimators. Additionally, the study clarifies the input channel and efficiency channel through whic-h managerial ownership positively influences corporate innovation. This paper contributes to the literature on corporate innovation by offering evidence for the role of managerial ownership on the innovation output. It also offers valuable governance insights for policymakers in emerging economies who are exploring corporate governance mechanisms for innovation systems, aiming to facilitate a systemic shift toward an innovative manufacturing economy.Unlike most prior studies on corporate innovation, this research focuses on the manufacturing sector in China, investigating the impact of managerial ownership on innovation from the perspective of patent activities. It is noteworthy that this study employs the Data Envelopment Analysis (DEA) controlling for managerial ability, Heckman two-stage estimation correcting for selection bias, and the use of a dynamic panel GMM estimator to control for omitted variables and endogeneity of reverse relationships—factors rarely considered in previous research. Additionally, this paper elucidates three aspects through which managerial ownership fosters innovation (innovation input, innovation output, and innovation efficiency). Overall, this study holds crucial implications for both firms and policymakers, offering insights into enhancing the competitiveness and innovation value of the manufacturing industry through equity incentives.

Date: 2024
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DOI: 10.1080/23311975.2023.2289202

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